Column: Vermont Single-Payer: Show Me the Money

Of the plans that states have hatched for the Affordable Care Act, none has been bolder than that of Vermont, which wants to implement a single-payer health-care system, along the lines of what you might find in Britain or Canada. One government-operated system would cover all 620,000 of Vermont’s residents. The hope is that such a system would allow Vermont to get costs down closer to Canada’s, as well as improve health by coordinating care and ensuring universal coverage.

Just two small issues need to be resolved before the state gets to all systems go: First, Vermont needs the federal government to grant waivers allowing it to divert Medicaid and other health-care funding into the single-payer system. Second, Vermont needs to find some way to pay for it.

A bill known as Act 48 required Vermont to create a single-payer system by 2017. But the state hasn’t drafted legislation spelling out how to raise the approximately $2 billion a year Vermont would need to run the system. The state collects only $2.7 billion in tax revenue each year, so an additional $2 billion is a vexingly large sum to scrape together.

Vermont is a middling-tax state, as states go. And that’s not an accident; its population consists of longtime Vermonters, some of whom vote Republican (at least for governor) and are not super-tax-friendly, and transplants from Massachusetts and New York state, who, last time I looked, had moved to Vermont partly because the taxes are lower. Paying for this program would likely make Vermont the highest-taxed state in the nation, by quite a lot.

Now, you can argue that people should be glad to make this trade-off, not just for peace of mind, but because they would trade higher taxes for lower (no) insurance premiums. You could also argue that poor people in America should be laughing and dancing and singing all day because every one of them is economically better off than starving farmers in drought-ridden regions of Africa. Neither argument will do you much good, however, because that’s not how people think.

Especially when you consider that estimates for this plan’s cost are likely to err on the optimistic side, because, well, people drawing up proposed budgets for their pet ideas tend to be a little optimistic. Yes, yes, there may be fabulous cost savings by using the government’s monopoly buying power to bargain prices down with providers. But Vermont is already the beneficiary of significant monopoly buying power: One insurer has 74 percent of the state’s small-group business. It’s called Blue Cross/Blue Shield, so don’t count on fabulous savings from squeezing out profits. The large group market is even more concentrated.

Nor could you get much administrative saving at the provider level, because they still have to deal with out-of-state insurers quite a bit. And the once-vaunted fabulous savings from preventative care have mostly turned out not to exist.

So this is going to be expensive. So expensive that I doubt Vermont is actually going to go forward with it.

This should be instructive for those who hope — or fear — that Obamacare has all been an elaborate preliminary to a nationwide single-payer system. It isn’t. The politics are impossible, and even if they weren’t, the financing would be unthinkable.

Megan McArdle writes about economics, business and public policy for Bloomberg View.